This blog is about macro-economics, financial markets and the world that has been pulled over your eyes to blind you from the truth.

— Neo: What truth?
— Morpheus: That you are a slave, Neo.

2011-01-26

Debunking bubble economies - China pt5: China attracted the most real estate investment in the world for a second straight year

China attracted the most real estate investment in the world for a second straight year, yet, with pricing getting completely out of control, and a liquidity crisis looming, the Chinese government has no other choice than try to curve excessive speculation and inflation that it created in the first place.

Jan. 26 (Bloomberg) -- China attracted the most real estate investment in the world for a second straight year as purchases of development sites helped lift global commercial property sales by 43 percent, Real Capital Analytics Inc. said.

China had $197.1 billion of transactions last year, 23 percent more than in 2009, the New York based company said in a statement today. That represented 34 percent of the $582 billion of deals worldwide, down from 41 percent the previous year as Chinese authorities sought to prevent the property market from overheating.

Larger down-payment requirements and efforts to clamp down on property speculation slowed transactions in China in the second and third quarters. In the final three months, the deal flow “reached the second highest in four years,” RCA said.

Increased sales of offices, malls, warehouses, hotels, condominiums and land lifted the value of global deals to the highest since 2007’s record of $1.23 trillion. The biggest driver was the U.S., where higher prices and a pickup in investor demand helped transactions more than double to $112.5 billion, RCA said.
[...]
About 95 percent of investments in Chinese real estate in 2010 were land deals for development projects, according to the statement. The largest was the purchase of a site in Nanjing for $1.78 billion.

The People’s Bank of China has raised benchmark lending rates twice by a quarter point since October to 5.81 percent. Consumer prices rose 3.3 percent in 2010, breaching a government target of 3 percent.

“Rate increases are necessary,” Li said in an interview at the World Economic Forum in Davos today. “We should gradually increase rates in the first and second quarter.”

Asian countries are attempting to battle accelerating inflation pressures as food and commodity costs climb and foreign capital inflows spur asset-price increases. India is forecast by economists to join Thailand and South Korea in increasing benchmark rates this month.

Li said rising real-estate prices are the “biggest danger” to China’s economy, “a thousand times worse than inflation.”
[...]China won’t suffer a “hard landing,” Li said. Its economy will grow about 9.5 percent this year and the average inflation rate will be between 3.8 percent and 4.0 percent, he forecast.

China Lifts Minimum Down Payment For Second Homes to 60% as Prices Climb. Unfortunately for them, the asset bubble is already there, so they cannot prevent it from forming. The best thing they could do is help to pop it. But then, they would create the "unexpected" hard landing that they are sure they won't suffer from.

Jan. 27 (Bloomberg) -- China increased the minimum down payment for second-home purchases and asked local governments to boost land supply, seeking to further limit the risk of asset bubbles forming in the world’s fastest-growing major economy.

“China will continue to effectively curb investment and speculative purchases of houses to consolidate and expand on previous measures,” the State Council said in a statement on its website yesterday. The minimum down payment for second house purchases rises to 60 percent from 50 percent, it said.

Premier Wen Jiabao said on Jan. 18 that the government will “resolutely” implement controls on the real-estate market in the first quarter, including curbing speculation and increasing supplies of affordable housing. Property prices rose for a 19th month in December, even after the government suspended mortgages for third-home purchases and restricted loans to developers.
[...]
The government last year raised down payments for second homes, suspended mortgages for third-home purchases and restricted loans to developers. Some cities, including Beijing, limited the number of homes local residents can buy. In October, the central bank increased interest rates for the first time in three years and raised borrowing costs again on Dec. 25.

Home prices in Shanghai jumped 26 percent in 2010 and those in Chongqing surged 29 percent, according to SouFun Holdings Ltd., the country’s biggest real estate website owner. Prices in 70 cities rose 6.4 percent in December from a year earlier, the smallest in 13 months.
[...]
The government also set interest rates for second-home mortgages at no less than 110 percent of benchmark rates, and said people selling homes within five years of purchase will be charged full transaction taxes, according to yesterday’s statement, which cited a meeting chaired by Premier Wen.

Land for affordable housing, reconstruction of shantytowns, and medium and small commercial houses should be no less than 70 percent of the regional government’s total supply, it said.

Regional governments should also “strictly” formulate property purchase policies and local residents with two homes will be banned from further purchases, it said.

Residents from outside the region with one home already will not be permitted to make further purchases and won’t be able to buy any homes if they fail to present proof of personal income tax payments made in the area, it said.

Shanghai Preparing to Start Trial of Property Tax Program to curb “irrational and speculative” investment. I would politely disagree with the objective of such tax. Taxes do not make prices go down, they make prices go up. They do not promote low price housing, but rather are there to fill in the pockets of those who enact the taxes. So let's not get confused here.

Han gave no details on how much the tax would be or when it would be implemented. China is expected to introduce a 0.8 percent tax rate, which will have a limited impact on the market, according to a Jan. 10 report by Nomura Holdings Inc.
[...]China has pledged to speed up trials for a property tax to rein in surging prices that have made housing too expensive for an increasing proportion of the population. Premier Wen Jiabao said on Dec. 26 that measures to rein in housing costs weren’t well implemented and that he would introduce more policies to crack down on speculation.
[...]
The cities of Shanghai and Chongqing are expected to be first to roll out property taxes in China, according to the official Xinhua News Agency and Shanghai Securities Newspaper in reports on Jan. 10. Shanghai may introduce a tax on new homes in the first quarter while the southwestern city of Chongqing may impose a luxury-property tax at the same time, they reported.
[...]
The property tax for Shanghai this year will have a minimal impact because the levy is expected to be low, said Michael Klibaner, head of China research at Jones Lang LaSalle Inc., the world’s second-biggest publicly traded commercial-property broker. He estimates China’s home prices will rise 5 percent to 7 percent this year.
[...]
The Century Weekly magazine reported earlier this month that the tax may be delayed following disputes between government departments.

Oh. And here it is. They are disputes between government departments. Probably about which one of them is going to get the money raised by the taxes right? Who cares about the property prices or whether people can or cannot afford to buy a property. What they care about is raising money for their own undisclosed agendas.

The Chinese city of Chongqing plans to introduce the tax for both new and existing homes, Mayor Huang Qifan said in an interview with state television CCTV aired on Jan. 12, without providing further details.